tag:blogger.com,1999:blog-602664611343971452.post3700552132923866853..comments2024-01-06T08:57:16.475-05:00Comments on Trust Your Instincts: Michael Pettis: When do we call it a solvency crisisAnonymoushttp://www.blogger.com/profile/11316888485290662469noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-602664611343971452.post-43626517362640102212013-03-26T07:33:06.213-04:002013-03-26T07:33:06.213-04:00Loan officers are not the only recipient of bonuse...Loan officers are not the only recipient of bonuses at banks. In fact, they represent at best the tip of the iceberg when it comes to bonuses.<br /><br />Please understand that bonuses back them were dramatically lower across the board for all employees than they are now. The point was that bonuses were still being paid to most employees at a time when there should have been no pay out and maximum retention of earnings to rebuild bank capital.<br /><br />Pettis misses the mark because everyone knew about the Less Developed Country loans. The market had already reacted and factored them into the valuation of the banks.<br /><br />There was no "surprise" when Citi led the formal write-down parade. The reason the market went up was that the banks finally acknowledged the losses and the losses were consistent with what the market expected.Anonymoushttps://www.blogger.com/profile/11316888485290662469noreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-6818020085374649602013-03-26T04:23:35.933-04:002013-03-26T04:23:35.933-04:00I am not sure toy know what you are talking about....I am not sure toy know what you are talking about. Commerical banks paid little to no bonuses to loan officers in the 1980s and none at all in the Latin American divisions. Pettis has. Got it exactly right.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-602664611343971452.post-73923936934904089202013-03-24T12:35:09.109-04:002013-03-24T12:35:09.109-04:00Market participants knew by early 1983 that the ba...Market participants knew by early 1983 that the banks were in trouble with LDC debt. Volcker began flooding the market with liquidity (M2) in early 1982 because of the effect of high interest rates on Mexico and LDCs, with the resulting exposure to money center banks.<br /><br />When the Plaza V accords were announced in September 1985, it became an open secret that banks were advised to build massive Treasury portfolios to derive significant capital gains, such that those gains could be used to write down LDC debt. History shows that indeed happened.<br /><br />A similar exercise occurred in the early 1990s. Thank Ross Perot for announcing it to the country ... along with the silly denials of a money center bank solvency issue that appeared in the financial press.<br /><br />With interest rates so low and bond vigilantes having such enormous power, the one-way bet isn't available any longer to generate those needed capital gains. But, my colleagues are not really fooled by claims of "fortress balance sheets" in the banking system. Not with the continued policies of "extend and pretend" and the asset valuation games as well as off balance sheet sleight of hand.Anonymousnoreply@blogger.com